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Urban Renewal Authority opens its books to reveal a HK$2b profit

South China Morning Post — 15 Jun, 2010

Surplus from projects up to 42 times redevelopment costs

The Urban Renewal Authority has opened up previously closed records that show it made a net profit of HK$2 billion from eight completed projects in the past five years.

Details of its individual projects – revealed for the first time in response to criticism that it has been too secretive – show the surplus from a project can be as much as 42 times the redevelopment cost.

In the most extreme case, the authority obtained more than HK$460 million from the Merton project in Kennedy Town without having to pay any redevelopment costs.

But the authority points out that with increasing public demand for more conservation projects and less dense developments, future redevelopments may not be so lucrative.

It is now likely to come under pressure to justify the profits and say how it will use the money for the public good. The URA has been criticised for withholding details from the public since its establishment in 2001, when it took over projects launched by its predecessor, the Land Development Corporation.

It only made public its yearly financial results, which were seen as meaningless since they are subject to short-term fluctuations. Yesterday’s disclosure fulfilled a promise last year after lawmakers and concern groups urged more transparency.

Authority chairman Barry Cheung Chun-yuen said the balance sheets looked good as six of the eight projects disclosed yesterday were launched by the Land Development Corporation, which operated under different rules.

“Co-developers were asked to pay for the acquisition in most cases, which would eventually reduce the redevelopment costs borne by the corporation,” Cheung said.

Now the URA takes full responsibility for the acquisition but is exempted from land premiums.

At least HK$4.5 billion in land premiums has been waived in 14 redevelopment projects over the past six years. Without this, for example, the authority would have had to pay HK$2 billion for the Lee Tung Street project in Wan Chai.

Cheung said the surplus would be injected into unprofitable projects, including the conservation of Central Market, the revitalisation of tenements in Mong Kok and the provision of flats in Ma Tau Wai Road, where an old tenement collapsed.

He rejected the criticism that the authority had offered too little compensation to affected residents while earning such sums.

“We don’t know how much we will gain until the moment we sell the flats. We can suffer a loss if the property market goes down.”

The authority recorded a record-breaking operating surplus of HK$6.9 billion in the last financial year, in contrast to a deficit of HK$4.5 billion in the preceding year.

Law Chi-kwong, a professor who studies renewal issues at the University of Hong Kong, said that whether the HK$2 billion surplus exceeded normal profits would depend on the projects’ life span and the economic cycles involved.

“A project lasting for 10 years will have a higher value as land value increases by 10 per cent yearly on average.” He said a private developer usually expected a profit margin of about 30 per cent from a development.

Ko Tak-leung, who sold his home for less than HK$2 million to the Land Development Corporation to make way for the Langham Place project, said he could not buy a decent home in Mong Kok. He lives in a rented Shanghai Street shophouse which is also facing a revamp by the URA.

URA opens its books to reveal a HK$2b profit
Surplus from projects up to 42 times redevelopment costs

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